Farm Management

Source: farmdoc daily(9):151, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, August 15, 2019.

The Farm Service Agency (FSA) of the U.S. Department of Agriculture released county acreages for crops and prevent plantings based on acreage reports filed by farmers. Even though prevent plant totaled 19 million acres in the United States, planted corn acres in 2019 are only slightly lower than 2018 values. With notable exceptions, corn acres decreased in counties that had large areas of prevent planting and increased in acres with little prevent planting. Soybean acres fell over the vast majority of counties in the United States.

FSA Acreage Data

FSA released their first set of 2019 county-level acreage data on August 1 (see Crop Acreage Data of FSA). This data indicated that there were 85.9 million acres of corn planted in the United States, down by 1% from the 2018 plantings of 86.4 million acres (see Table 1)

The 2019 planting number (85.9 million acres) is expected to increase as FSA continues to update values monthly until January 2020. From 2011 to 2018, corn acreage in the final January report averaged 1.8% higher than the initial August report. However, in recent years, the increase has been much lower. From 2016 to 2018, the January value was .7% higher than the initial August value. A 1.3% increase – the average from 2011 to 2018 – would increase 2019 planted corn acres to 87.4 million acres. A .7% increase – the average from 2016 to 2018 – would increase planted acres to 86.4 million acres, roughly the same as the planted acreage for 2018. Continue reading →

The funny thing about a “budget bill” is that it’s not all about the budget. Many laws that are not related to the budget are created or revised within a budget bill. That’s the case with Ohio’s HB 166, the “budget bill” signed on August 18 by Governor Dewine. In the midst of the bill’s 2,602 pages are revisions to an important law for agricultural landowners—the “Right to Farm” Law.

Ohio’s Right to Farm Law, also referred to as the “Agricultural District Program,” provides immunity from a civil nuisance claim made by those who move near an existing farm. To receive the immunity under the old law, the land must be enrolled as an “agricultural district” with the county auditor, agricultural activities have to be in place first, i.e., before the complaining party obtained its property interest, and the agricultural activities must not be in conflict with laws that apply to them or must be conducted according to generally accepted agricultural practices. The immunity comes in the form of an affirmative defense that a farmer can raise if sued for nuisance due to agricultural activities such as noise, odors, dust, and other potential interferences with neighbors. If the landowner can prove that the activities are covered by the Right to Farm law, the law requires dismissal of the nuisance lawsuit. For years, we’ve been encouraging farmers to enroll land in this program to protect themselves from those who move out near a farm and then complain that the farming activities are a nuisance.

The new revisions to the law in the budget bill change the requirements for the land and agricultural activities that can receive Right to Farm immunity. In addition to protecting agricultural activities on land that is enrolled with the county auditor as agricultural district land, the law will now also protect the following from nuisance claims:

Farmers across the Midwest can now take prevent planting payments on soybeans, as final planting dates for crop insurance purposes have arrived. Our comparisons suggest that planting soybeans do not have higher returns than taking a prevent planting payment given a high coverage level on crop insurance. However, the risk for lower returns from planting as compared to taking the prevent planting payment is limited as crop insurance provides a floor on revenue. These risks become greater the later soybeans are planted in the late planting period. The economic advisability of planting soybeans depends on receiving Market Facilitation Payments and no additional Federal aid for prevent planting acres. Our current projections indicate that returns from either prevent planting or planting soybeans will not cover costs and working capital will be eroded. At the end of this article, links to YouTube videos provide the latest information on cover crops and the Market Facilitation Program as well as a general background on preventing planting.

Yield Declines and Soybean Prevent Plant Decisions in 2019

Final planting dates for soybeans have passed in all the Corn Belt (see farmdoc daily, May 7, 2019). For Illinois, the final planting date is June 15 for northern Illinois counties and June 20 for central and southern Illinois counties. After reaching the final planting date, farmers can take soybean preventing plant payments on farmland that was intended to be planted to soybeans if they had purchased a COMBO crop insurance plan (Revenue Protection (RP), RP with harvest price exclusion, and Yield Protection). Farmers can continue to plant soybeans, however, the crop insurance guarantee goes down 1 percent per day for each day after the final planting date during the late period. In Midwest states, the late planting period lasts 25 days after the final planting date. After the late planting period, soybeans can still be planted, but the guarantee is 60% of the original revenue guarantee.

A key to evaluating the plant versus prevent plant decision is assessing yield losses from late planting. A comparison of double-crop soybean yields to full-season soybean yields in southern Illinois provides some indications of yield declines with late planting. Yield data were obtained from Illinois Farm Business Farm Management (FBFM). From 2012 to 2019, double-crop soybean yields averaged 38 bushels per acre, 75% of the average full-season yield of 51 bushels per acre (see Table 1).

Consistent rains across Ohio and the Corn Belt continue to delay planting progress as the June 17 USDA Planting Progress report showed that 68% of intended corn acres and 50% of intended soybean acres have been planted in Ohio. Nationwide, roughly 27 million acres of corn and soybeans will either be planted or filed under prevented planting insurance. Across Ohio, the Final Plant Date (FPD) for soybeans is June 20. Soybeans can be planted after the FPD, but a one percent reduction in the insurance guarantee occurs. This brief article outlines economic considerations for soybean prevented planting under three scenarios: planting soybeans on corn acres, planting soybeans late, and taking prevent plant soybeans. There are three sections to this article: a brief market update on corn and soybeans, a policy update on Market Facilitation Payments, and then finally the scenarios listed above. This article contains the best information available as of release, but conditions may change. Farmers should check with their crop insurance agents when making prevented planting decisions. OSU Extension is not an authorizing body of federal crop insurance policies.

In his letter, Governor DeWine notes that record rainfall through the spring planting season has been devastating to Ohio farmers, with flooding and saturated fields preventing them from planting crops. Only 50 percent of Ohio’s corn crop and 32 percent of Ohio’s soybean crop have been planted as of June 10, 2019.

“The harsh reality for Ohio farmers is that many acres will remain unplanted,” Governor DeWine said. “Our dairy and livestock sectors also face serious forage and feed shortages. We recognize the tremendous challenges facing our agricultural community, and we are working to identify any and all sources of possible relief.”

The letter is a formal request to the U.S. Department of Agriculture for a USDA disaster declaration for Ohio so that assistance can be made available to Ohio farmers.

“I visited with several farmers this week and saw firsthand the impact of this devastating rainfall. Fields are visibly filled with water and weeds instead of crops,” said Ohio Department of Agriculture Director Dorothy Pelanda.

Excessive rainfall presented challenges as early as last fall. Because of poor field conditions, some 2018 crops are still in the field and yet to be harvested. Currently, producers are dealing with erosion of their cropland, delayed fieldwork and planting, manure application challenges, and concerns among livestock producers that forages will be in short supply.

Source: Barry Ward, Leader, Production Business Management & Director, OSU Income Tax School

Production costs for Ohio field crops are forecast to be largely unchanged from last year with slightly higher fertilizer and interest expenses that may increase total costs for some growers. Variable costs for corn in Ohio for 2019 are projected to range from $356 to $451 per acre depending on land productivity. Variable costs for 2019 Ohio soybeans are projected to range from $210 to $230 per acre. Wheat variable expenses for 2019 are projected to range from $178 to $219 per acre.

Returns will likely be low to negative for many producers depending on price movement throughout the rest of the year. Grain prices used as assumptions in the 2019 crop enterprise budgets are $3.60/bushel for corn, $8.20/bushel for soybeans and $4.25/bushel for wheat. Projected returns above variable costs (contribution margin) range from $150 to $308 per acre for corn and $144 to $300 per acre for soybeans. Projected returns above variable costs for wheat range from $102 to $202 per acre (assuming $4.25 per bushel summer cash price).

Return to Land is a measure calculated to assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $23 to $182 per acre in 2018 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $84 to $254 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from negative $2 per acre to a positive $143 per acre.

Total costs projected for trend line corn production in Ohio are estimated to be $753 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $66 per acre include depreciation, interest, insurance and housing. A land charge of $187 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $69 per acre. Returns Above Total Costs for trend line corn production are negative at -$120 per acre.

Total costs projected for trend line soybean production in Ohio are estimated to be $518 per acre. (Fixed machinery costs – $52 per acre, land charge: $187 per acre, labor and management costs combined: $45 per acre.) Returns Above Total Costs for trend line soybean production are also projected to be negative at -$76 per acre.

Total costs projected for trend line wheat production in Ohio are estimated to be $488 per acre. (Fixed machinery costs: $52 per acre, land charge: $187 per acre, labor and management costs combined: $39 per acre.) Returns Above Total Costs for trend line wheat production are also negative at -$137 per acre.

We stand at a point of extreme price and policy uncertainty. In the Midwest, corn planting is historically late and many acres are or soon will be eligible for prevented planting payments on corn crop insurance policies. On many farms, corn prices have not increased enough to cause net returns from planting corn to exceed net returns from prevented planting. However, the U.S. Department of Agriculture announced a 2019 Market Facilitation Program (MFP) and has currently indicated that payments will be tied to 2019 planted acres. The 2019 MFP could provide incentives to plant crops and not take prevented planting payments. Moreover, this program could bring a little used option into play this year: take 35% of the corn prevented planting payment and plant soybeans after the late planting period for corn. Adding confusion to this situation is a disaster assistance program working its way through Congress. We provide detail on the 2019 MFP program based upon what is known at this time, and the Congressional disaster assistance bill. Then, we evaluate farmer options at this point. Decisions are difficult. Corn prices have not risen enough to justify planting corn on many farms. Yet, corn prices could increase if a large number of prevent planting acres occur.

2019 Market Facilitation Program Payments

In a May 23rd press release, the U.S. Department of Agriculture (USDA) outlined the 2019 Market Facilitation Program (MFP). This program is projected to provide $14.5 billion in direct payments to farmers of specific commodities, $4.9 billion more than the $9.6 billion spent on the 2018 MFP (Schnepf, Monke, Stubbs, and Hopkinson). Important details of this program are:

Payments will be based on 2019 planted acres to MFP-covered crops. USDA has initially stated that payments will not be received on prevented planting acres but the final details have yet to be released. By itself, this provision provides incentives to plant crops and not take prevented planting payments.

There will be a single payment rate for a county. That per acre payment rate will be based on total plantings of the MFP-covered crops on the individual farm. Acres planted to an individual crop will not matter other than its contribution to total planted MFP crops on the farm. As an example, suppose that MFP rate for a county is $50 per acre. A farm with 60 acres in corn and 40 acres in soybeans will have 100 MFP acres and receive $5,000. The farm will also receive $5,000 if 40 acres are corn and 60 acres are soybeans.

Payments acres in 2019 cannot exceed the payment acres on the farm for the 2018 MFP. This restriction is designed to prevent more acres moving into covered crops, particularly from grasslands or lands typically not farmed. It will most likely be made on a Farm Service Agency (FSA) farm basis. A farm that had 80 MFP-acres in 2018 cannot receive payments on more than 80 acres in 2019. (see, Perdue Provides More Clarity on Tariff Aid).

Payments will be made in three tranches, the first in late July/early August after the July 15th planting reporting date with the Farm Service Agency (FSA), November, and early January. Whether or not the November and early January payments are made will depend on USDA determination on the need for these payments.

Many important questions remain to be answered regarding 2019 MFP payments; the answers to these questions could affect 2019 planting decisions. The most important question is: What are the 2019 per acre payment rates?

Source: Barry Ward, OSU Extension

Wet weather and planting delays throughout much of Ohio and the eastern Cornbelt have many producers thinking about switching corn acres to soybeans or the taking the prevented planting option of their Multiple Peril Crop Insurance policy. Ohio had 9% of intended corn acres planted by May 19th which is far behind the 5 year average of 62%. Farms with pre-plant nitrogen or herbicides applied for corn production may have no option to switch to soybeans. Seed availability may also limit choice for some. Other factors, such as strict adherence to a crop rotation or landlord considerations may limit farmer choice when it comes to switching from corn to soybean plantings in a given year. Farm leases may contain specifications on crop rotations or even what crops may be grown. There may also be unwritten agreements between parties that limit the possibility of growing soybeans in successive years.

Producers that don’t have these limitations may be considering the option of switching acres to soybeans and it will likely come down to expected profit. Field by field budgeting is recommended and with delayed planting the yield expectations change as we move later into the growing season. What will be the likely yields for a given farm for the two crop choices? A recent article, “Delayed Planting Effects on Corn Yield: A “Historical” Perspective” is a good starting point in evaluating potential yield loss due to late corn planting: https://agcrops.osu.edu/newsletter/corn-newsletter/2019-12/delayed-planting-effects-corn-yield-%E2%80%9Chistorical%E2%80%9D-perspective

This choice again favors corn as the lower soybean yield due to late planting and additional seeding costs make the choice of corn somewhat stronger compared to Scenario 2.

The recent announcements of another round of Market Facilitation Payments and changes to Prevented Planting Coverage due to the pending Disaster Aid Bill may add further complexity to this choice.

As planting is delayed further into June the potential lower yields of both corn and soybeans due to a later planting window will tend to favor soybeans. These simplified scenarios are just examples and farmers should budget for the different yield, price and cost combinations based on their own numbers.

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